Does your bank think you’re a “Muppet?”

By Dave Thrifty

(Greg Smith resigned as Goldman Sachs executive director and head of the firm’s US equity derivatives business in Europe, the Middle East and Africa. This is an edited version of an article he wrote for the New York Times on his last day.)

“Today is my last day at Goldman Sachs. After almost 12 years at the firm I believe I have worked here long enough to understand the trajectory of its culture, its people and its identity. And I can honestly say that the environment now is as toxic and destructive as I have ever seen it.To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.

When the history books are written about Goldman Sachs, they may reflect that the current chief executive officer, Lloyd Blankfein, and the president, Gary Cohn, lost hold of the firm’s culture on their watch. I truly believe that this decline in the firm’s moral fiber represents the single most serious threat to its long-run survival.I have always taken a lot of pride in advising my clients to do what I believe is right for them, even if it means less money for the firm. How did we get here? The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not an axe murderer) you will be promoted into a position of influence.

What are three quick ways to become a leader?

1. Execute on the firm’s “axes”, which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit.

2. “Hunt Elephants”: get your clients – some of whom are sophisticated, and some of whom aren’t – to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them.

3. Find yourself in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.

It makes me ill to hear how callously people talk about ripping their clients off. Over the last 12 months, I have seen five different managing directors refer to their own clients as “muppets” . It astounds me how little senior management gets a basic truth: if clients don’t trust you, they will eventually stop doing business with you. It doesn’t matter how smart you are. Goldman Sachs today has become too much about shortcuts and not enough about achievement. It just doesn’t feel right to me anymore.

I hope this can be a wake-up call to the board of directors. Make the client the focal point of your business again. Without clients, you will not make money. In fact, you will not exist. Weed out the morally bankrupt people, no matter how much money they make for the firm. And get the culture right again, so people want to work here for the right reasons. People who care only about making money will not sustain this firm – or the trust of its clients – for very much longer.”

This is a heavy handed edit of the original but I think it important to give an overview of what the largest investment bank in the world thinks about its clients. Since that article he has written a book “Why I left Goldman Sachs” It’s worth a read.